Burger King owners to cash out with public offering

McDonald's, Wendy's grab market share

MIAMI — Burger King Corp. plans to sell shares to the public for the first time, allowing its private equity owners to cash out three years after buying the company for $1.5 billion.

Plans for an initial public offering will be filed later this month or next month, Burger King said Wednesday. Texas Pacific Group, Bain Capital and Goldman Sachs Capital Partners purchased Burger King from Diageo PLC in December 2002. The company was founded in 1954 and has 11,000 restaurants.

Burger King, the nation's second-largest hamburger chain, is losing market share to bigger rival McDonald's Corp. and Wendy's International Inc. as new menu items and ads have failed to lure customers.

Burger King's share has declined from 1999 to 2004, according to data compiled by restaurant consultant Wally Butkus. McDonald's had 37.6 percent market share in 2004, compared with 12 percent each for Wendy's and Burger King, he said.

"Burger King has worked harder to improve operations," said Butkus, principal at Restaurant Research LLC in Redding, Conn. "They are in a much better position than they have been in some time."

But he added that Burger King may find it difficult to further improve results this year. "I think 2006 is going to be a lot more competitive than 2004 and 2005," Butkus said. "In 2006 there is more discounting, and that tends to hurt margins a bit."

The company has boosted sales for seven consecutive quarters, but one industry observer is not impressed.

"Turning the corner doesn't get you out of the alley," said Dennis Lombardi, executive vice president at WD Partners, a food service strategy company. "They are clearly doing better, but better is a relative term."

The Financial Times reported last month that the IPO will value the company at $2.5 billion. The Texas Pacific group funded the deal with $1.2 billion in cash and $300 million in debt.

Burger King did not reveal how many shares or what percentage of the firm will be offered or the IPO's underwriter.

James McLamore and David Edgerton opened their first Burger King in Miami in 1954. Three years later the company added the Whopper sandwich. Burger King started franchising in 1959 and was sold to Pillsbury in 1967. Grand Metropolitan PLC acquired Pillsbury in 1988, and in 1997 combined their operations with Guinness to form Diageo.

The Burger King sale would follow an IPO last week by McDonald's fast-growing Chipotle Mexican Grill Inc. chain, which raised $173 million. The shares more than doubled in their debut.

"Names such as Burger King that have an established footprint in the marketplace have questionable growth," said David Menlow, president of IPOFinancial.com. "It's not something that is going to tear the cover off the ball like Chipotle."